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Yuzhou Properties Summary

Core Content

Yuzhou Properties is a property development and management company with a focus on real estate holding and development. The report provides an outlook update for the second half of 2013 (2H13), highlighting the company's sales performance, financial metrics, and valuation.

Key Financial Highlights

• Sales Target: Raised to Rmb9bn for 2H13, up from Rmb8bn, which is 38% higher than FY12. As of mid-August, the company had locked in Rmb7.3bn of contracted sales.
• Saleable Resources: Approximately Rmb5.4bn available for 2H13, with a sales-through rate of 37% expected to meet the target.
• Management Expectations: Projected to have c.Rmb18bn of saleable resources in FY14, representing a 35% growth from 2013.
• Gross Margins: Declined to 32% in 1H13, down from 45% in 1H12 and 40% in FY12, due to low margin projects sold in late-2011 and early-2012.
• Core Earnings: Declined by 41% y-o-y to Rmb95m, driven by lower margins and higher non-core profit.
• Net Profit: Increased to Rmb1.489bn in 2013F from Rmb1.047bn in 2012A.
• EPS: Core EPS increased to Rmb0.43 in 2013F from Rmb0.30 in 2012A.
• Dividend Yield: Expected to be 6.6% for FY13 and 9.6% for FY14.
• Net Debt Ratio: Decreased to 59% in 1H13 from 62% in FY12, with a safe level of short-term debt at 36% of total debt.
• Cash Level: Increased by 24% to Rmb4.6bn, mainly due to sales collections.
• Sales Collection: 77% of contracted sales (Rmb5.7bn) were collected in 1H13.
• Fair Value: Estimated at HK$2.03, with the company trading at a 67% discount to NAV.
• Valuation Metrics:
  • 3.1x FY14F PE
  • 0.6x P/BV
  • 12.2% Net Dividend Yield

Main Points

• Sales Performance: Strong YTD sales have led to an increase in the sales target for 2H13. The company is expected to meet this target with available saleable resources.
• Margin and Delivery: Gross margins are expected to improve in 2H13 as projects are delivered. Management is focused on project delivery and execution capability.
• Valuation: The company's current share price is considered attractive given its strong presales and high dividend yield.
• Land Acquisitions: Management may consider land acquisitions in 2H13, particularly in Fujian and the Yangtze River Delta region, depending on sales performance.
• Debt Management: The company is maintaining a net gearing ratio between 60% and 70%, with a manageable level of short-term debt.

Key Information

• Project Deliveries in 2H13:
  • Yuzhou Shoreline (4Q13): 303,480 sm
  • Yuzhou Central Coast Ph: 175,770 sm
  • Yuzhou Skyline Ph III: 211,736 sm
  • Total: 690,986 sm
• Presold GFA: As of June 2013, 556,981 sm
• Presales: As of June 2013, Rmb5,872m
• Land Premium Payments: Unpaid land premium as of mid-Aug 2013 was Rmb1.75bn, with Rmb1.1bn to be paid in FY13.
• Dividend Payout Ratio: Unchanged at 30% based on core earnings.
• Potential Catalyst: Stronger than expected sales in 2H13 could support share price performance.
• DBSV vs Consensus: DBSV's estimates are lower than the consensus, indicating potential upside for the company.
• Dividend Yield: Current price implies a dividend yield of 6.6% for FY13 and 9.6% for FY14.

Valuation Comparison

• Tier 1 Players:

  • China Overseas: Buy recommendation, 3.1x PE, 12.2% yield
  • Country Garden: Buy recommendation, 30x PE, 6.8% yield
  • CR Land: Buy recommendation, 22x PE, 11.9% yield
  • Evergrande: Buy recommendation, 17x PE, 4.7% yield
  • Longfor: NR (No Recommendation), 15x PE, 7.4% yield
  • Shimao Property: Buy recommendation, 30x PE, 7.6% yield

• Tier 2 Players:

  • Agile Property: Buy recommendation, 13x PE, 5.5% yield
  • COGO: Buy recommendation, 36x PE, 6.0% yield
  • Franshion: Buy recommendation, 27x PE, 6.9% yield
  • Guangzhou R&F: NR, 14x PE, 4.8% yield
  • Hopson Dev: NR, 30x PE, 6.1% yield
  • KWG Property: NR, 18x PE, 4.3% yield
  • Poly (Hong Kong): NR, 35x PE, 2.0% yield
  • Shui On Land: Hold recommendation, 32x PE, 11.1% yield
  • Sino-Ocean Land: Hold recommendation, 35x PE, 6.3% yield
  • Soho China: Hold recommendation, 32x PE, 11.1% yield
  • Sunac China: NR, 32x PE, 3.0% yield
  • Yanlord Land: Hold recommendation, 13x PE, 8.0% yield
  • Yuexiu Property: Buy recommendation, 37x PE, 6.9% yield

• Tier 3 Players:

  • BJ Cap Land: NR, 18x PE, 3.1% yield
  • BJ North Star: NR, 14x PE, 4.4% yield
  • C C Land: Hold recommendation, 20x PE, 4.7% yield
  • Central China: Buy recommendation, 20x PE, 4.1% yield
  • China SCE: NR, 12x PE, 5.3% yield
  • Glorious Property: NR, 23x PE, 4.1% yield
  • Kaisa Group: NR, 30x PE, 3.1% yield
  • Lai Fung: NR, 27x PE, 10.5% yield
  • Minmetals Land: NR, 10x PE, 4.7% yield
  • Renhe Commercial: NR, 24x PE, 3.4% yield
  • SPG Land: Buy recommendation, 10.06 HK$, 10.06 HK$ market cap

Financial Ratios

• ROAE: Increased to 21.5% in 2013F from 20.1% in 2013A.
• Net Debt/Equity: Remained at 0.6x in 1H13.
• Net P/BV: 0.6x in 1H13, compared to 0.7x in 1H12.
• Effective Tax Rate: Low at 4% in 1H13 due to the reverse of tax over-provision.
• Gross Margin: Dropped to 32% in 1H13 from 45% in 1H12.

Conclusion

Yuzhou Properties is expected to benefit from its strong sales performance and strategic focus on project delivery and land acquisitions. Despite a decline in core earnings due to lower margins, the company's current valuation and dividend yield make it an attractive investment opportunity. The report suggests that the company's financial position is stable, with a manageable debt ratio and increased cash reserves.